How do Mainstream Grocers Deal With the Quagmire of Low Market Growth, Rampant Discounters and Budget Minded Shoppers?

Food sales in the 12 weeks to 20^th July grew attheir slowest rate for 10 years, up just 0.9% in value. 

Despite the uptick in the economy, and in consumer confidence, people are reluctant to give up their thrifty food buying habits acquired during the depths of the recession. They are helped of course by being able to shop at discount supermarkets. Aldi and Lidl have raised their quality game, kept rock bottom prices, and been rewarded with rocketing growth rates.

What then is the best way to deal with lacklustre growth rates, budget conscious consumers and rampant discounters?

Suggested action is falling into two camps. One says that mainstream grocers must reduce their prices by meaningful amounts, and soon. The other says go where the growth is and invest in online grocery shopping and convenience stores.

The IGD continues to back its online growth forecasts saying that sales will more than double in 5 years.  It points out that online grocery shopping is still in its infancy. Just 27% of shoppers use on line, and only 10% do their major shop online. The IGD reckons that the convenience of shopping online, providing as it does the ability to shop anytime, anywhere, combined with new initiatives being developed by retailers, and the added ease provided by mobile technology, means that more and more shoppers will gravitate to online buying.

Certainly some retailer initiatives look attractive. The boom in click and collect outlets avoids the need to wait in at home for the order to arrive, and even at home it is possible to select one hour slots leaving the rest of the day free. Retailers are also working on apps to make shopping easier. Instead of trawling through every category, Ocado’s app provides personalised guides to what is usually bought, what was bought last time, and ready prepared lists of what might be needed. Ocado is a leader in mobile shopping and says that 45% of its shoppers check out on a mobile gadget.

Retailers are also working on the opportunity to build volume over and above a standard shop by linking products in a way that is not possible in store – pizza and beer for example.

IGD points out that further growth will come from the advent of new players like Morrisons, the Coop, and Iceland who are all testing online shopping methods.

The above initiatives should encourage more online shopping, but there are two snags. First they are a double hit financially being costly in terms of investment and considerably less profitable than regular in store shopping. And second, they do not solve the knotty problem of uncompetitive pricing compared with the discounters.

Sainsbury’s tie up with discounter Netto starts to address the pricing issue, and there is a suggestion that Tesco could manage its stores like it does its product range, with three tiers of shops – value, to provide rock bottom prices, middle, and Finest as a Waitrose look alike to keep the profit margins up.

It is difficult to see how mainstream supermarkets will be able to afford a big drop in prices and the huge investment in online without radical restructuring, a dip in profits, and the usual squeeze on suppliers.

Competitive pricing has to be the priority, and with it an acceptance that online may not grow as fast as many predict.